December 31, 2010

Well, not a bit of snow actually. Some tens of thousands of travelers were stranded at the London airports because of the poor weather conditions there. No wonder that Britain's leftist newspaper The Guardianfavors renationalization then.

According to The Guardian's Neil Clark even before last weeks terrible delays, Britain's privatized airports, "with their shortage of public seating, their lack of reasonably priced food and drink outlets, and their depressing, unfriendly atmosphere, were an international disgrace." I never noticed Heathrow had a lack of "public" seats but I do wonder just what constitute "reasonable" food and drink prices according to Mr Clark? Also, could he point to a single government building that has an uplifting, "friendly" atmosphere to it? And is that really what travelers were upset about when they spent the night at the airport?

Airports' "spectacular failure to adequately deal with recent snowfalls has," according to Clark "surely exposed to all but the most fanatical free marketeers, the enormous price we pay for having our infrastructure in private ownership." He reminiscences about the 1960s when state owned terminals had to provide "lots of seating" for the public whereas according to the "commercial attitude" of private airlines today, "every square inch must be turned over to retail space." Isn't that despicable?

Unlike its state owned predecessor, the privately owned BAA is seemingly guided by just one concern: maximising profits for its Spanish owned parent company, Ferrovial.

Clark seems startled to find that a private company cares to turn a profit. Indeed, it's ridiculous, he writes, "to have profit hungry multinational companies running things that really are best left to the public sector." If that includes airports, what doesn't it, I wonder?

Public seating aside and disregarding the moral implications of public versus private ownership, there is no doubt that privately owned services always do better than their public counterparts. As Clark so disgustingly points out, private companies care about maximizing profits. That means that they have to offer better products and better service than their competitors else their customers will turn elsewhere. Indeed, people are quite willing to drive an extra mile for an airport that serves cheaper airlines and flights. They aren't usually so willing to pay extra for comfortable seating though---which is probably why many people fly economy while very few buy a first or business class ticket.

Public ownership by contrast has no competitors. Consequently, it has no reason to innovate, no reason to improve its service, for the people have nowhere else to go. The only reason government has to ensure that its nationalized companies do well is some altruist benevolence maybe or the fear of being voted out of office. History tells us that the profit motive is a far more solid incentive.

December 26, 2010

"As there is no real problem with the Internet, it's not surprising that some of our top minds have been working diligently on a solution."

David Harsanyi wrote that at Reason this May and argued against the proposition of mandating "neutrality" on the Web in the same article.

The problem, according to proponents of "net neutrality", is that large companies, Google and Microsoft for instance, would soon be able to afford faster delivery of their content at the disadvantage of smaller companies and startups. That is unfair, says the Federal Communications Commission (FCC) and it is considering regulation that would ensure equal access for all Internet companies.

As Harsanyi puts it, that "makes as much sense as mandating that tricycle riders have the same rights and privileges as cars and trucks on our roads---highway neutrality."

The FCC promises it doesn't have any intention of controlling Internet content, only of making access fair. But empowered with the ability to regulate the flow of online traffic, it offers a semantic, not substantive, excuse for a power grab.

Peter Suderman, also with Reason, has similarly been arguing against net neutrality. He sees no reason to worry. "If anything, it seems like consumers would benefit from larger web providers being able to offer nifty, advanced services that a smaller competitor might not be able to afford."

He isn't convinced that the theoretical tiny competitor's inability to pay for speedier service is a concern serious enough to warrant regulatory meddling. "Think of how FedEx and UPS operate," he suggests. "Some customers pay to have their packages delivered to their destinations faster, yet no one thinks of this as harmful to those who choose regular speed delivery. Why should it be any different with ISPs [Internet service providers], which are essentially delivery networks for data rather than physical goods?"

Startups always face long odds against entrenched competitors, which is why the majority of new businesses fail relatively quickly. But the best startups compete through genuine innovation, not by taking advantage of government enforced business model barriers.

December 21, 2010

In a column again lamenting the benighted state of the United States, Thomas Friedman criticizes China's treatment of Nobel laureate Liu Xiaobo. Liu is a political prisoner serving an 11-year sentence for subverting state power. Of course, just a bit more than a year ago, Friedman was comparing the U.S. government with China's -- unfavorably!

On Sept. 8, 2009 he wrote, "[I]t is hard not to draw the following conclusion: There is only one thing worse than one-party autocracy, and that is one party democracy, which is what we have in America today. One party autocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages."

Friedman went on to note approvingly Beijing's ability to command orderly entry into the clean technology industry, versus the United States' reliance on chaotic markets.

Of course, Milton Friedman understood, but Thomas Friedman apparently does not, that over the long haul, capitalism and freedom work together, and that they are not separable from each other. The Beijing government's powers to throw a human rights activist in jail and to command massive economic projects are of a piece. They are antithetical to representative democracy and rule of law.

It is understandable that in these tough times people will question how well our system is working, but some perspective is necessary. The past 100 years of U.S. economic performance are unmatched in human history. The engine of the U.S. economy powered enormous improvements in the health, welfare, and living standards of hundreds of millions of people. The political and economic freedoms guaranteed by our system of government made such prosperity, innovation, and achievement possible.

Twenty-five years ago, the passing intellectual fancy was the United States' decline relative to another rising Asian power, Japan, because of Tokyo's ability to plan economic growth and manage private sector investment. Such predictions look silly today.

Warren Buffett, who has the true perspective of a long term investor, has observed, "In the 20th Century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497."

As we consider what is next for the United States, rather than turning to the coercive power of centralized planning, as Thomas Friedman seems to consider, we should affirm our confidence in the values that have brought us so far -- capitalism and freedom -- as Milton Friedman knew. Nobody ever made money for long by selling America or American values short.

December 17, 2010

Ten years ago, Microsoft was on top of the world. Newspapers predicted it would rule the world and governments from Europe to the United States launched antitrust investigations, set on breaking up the company that seemed well underway to establishing a permanent monopoly.

In just a few short years, Microsoft is on the decline. Competitors who once complained of its "Death Star" might are doing better in new areas of information technology. What happened? The Huffington Post explains:

In short, changing appetites of the marketplace, technological evolution and questionable decision-making inside Microsoft itself have combined to accomplish what antitrust regulators never did: rolling back the company's dominance and opening the terrain for newer, nimbler entrants.

December 15, 2010

The four Republicans appointed to the commission investigating the root causes of the financial crisis plan to bypass the bipartisan panel and release their own report Wednesday, according to people familiar with the commission's work.

The Republicans, led by the commission's vice chairman, former congressman and chair of the House Ways and Means Committee Bill Thomas, will likely focus their report on the explosive growth of subprime mortgages and the heavy role played by the federal government in pushing mortgage giants Fannie Mae and Freddie Mac to purchase and insure them. They'll also likely focus on the Community Reinvestment Act, a 1977 law that encourages banks to lend to underserved communities, these people said.

The Republicans' report is expected to conclude that government policy helped inflate the housing bubble and that prices weren't expected to crash because the government pushed homeownership so aggressively. They say that the report will note that once the bubble burst, a financial panic followed because firms weren't adequately prepared.

Besides Thomas, the Republicans on the panel include Peter Wallison, a fellow at the American Enterprise Institute, Keith Hennessey, former head of the National Economic Council under George W. Bush and as a fellow at the Hoover Institution, and Douglas Holtz-Eakin, former chief of the Congressional Budget Office and now with American Action Forum, a policy institute in Washington.

December 14, 2010

Riding on a powerful wave of resentment with the Obama Administration's interventionist policies, the Republicans performed exceptionally well in last month's midterm elections. They picked up scores of House and Senate seats, several governorships and many state legislatures turned red.

After two years of obstructionism, the left, including the White House, has urged the opposition to become a more "responsible" stakeholder. As they will have a majority in the House of Representatives next year, Republicans should work with Democrats, the president said on election night, not "spend the next two years refighting the political battles of the last two." The challenges that the country faces, he added, do not "lend themselves to simple solutions or bumper sticker slogans. Nor are the answers found in any one particular philosophy or ideology." He shouldn't expect Republicans to share that view.

Republican leaders know that the Tea Party insurrection launched against government overreach in the private sector, including health care, last year was not exclusively aimed at Democrats. Conservatives also blame Republicans who, especially during the Bush Administration, allowed a huge expansion in the size of government and a vast increase in public spending as a consequence. Federal spending nearly doubled between 2000 and 2008 in fact.

Under the Obama Administration the spending spree has continued with hundreds of billions in stimulus and an overhaul of health insurance that is projected to explode Medicaid costs. The Federal Governments has already to borrow more than a third of what it spends and that deficit will only grow in the years to come. But bumper sticker slogans and ideological divide are precisely what will prevent meaningful reform.

Ahead of November's congressional elections, Republican leaders pledged to rein in spending, somehow but they have so far refrained from championing concrete austerity measures. They know that even if the self proclaimed fiscal conservatives of the Tea Party oppose bigger government they like a lot of what government does for them.

Overwhelmingly tea partiers, like all Americans, want to keep Medicare and Social Security for the elderly and oftentimes Medicaid for low income families as well. Cuts in defense spending moreover are anathema to all wings of the Republican Party yet along with entitlements, these are the Federal Government's single largest expenditures.

Without entitlement reform and reductions in defense spending, it is nigh impossible to bring down the deficit and balance the budget, except through raising taxes---something else Republicans won't do.

Republicans' unwillingness to see tax rates go up was most dramatically exposed this month when they blocked all pending legislation in Congress before an extension of Bush era tax cuts would be enacted. They had a good case to make, arguing that during a time of recession, the government should provide certainty and stability before anything else. Democrats were suddenly concerned about the deficit on the other hand, pointing out that if they let the Bush tax cuts on the wealthiest of Americans expire, it would produce several hundreds of billions in revenue.

A compromise negotiated with the White House ultimately saw Republicans agreeing to an extension of unemployment benefits in return for the tax cuts---another multibillion dollar expense, at least for the next thirteen months. The fundamental unwillingness to compromise on core principle remains however.

Democrats and the White House may claim to be open to compromise but when it comes to spending cuts, they are far from pragmatic. When the chairmen of the president's debt commission proposed to reform Social Security this month in order to ensure the system's affordability for several more decades, including a gradual raise in the retirement age, dozens of Democratic lawmakers immediately lined up to "stand firmly against" pension cuts. The president himself has pledged to preserve Social Security "forever" while Speaker Nancy Pelosi promised to "do what is right for our seniors, who are counting on the bedrock promises of Social Security and Medicare."

The president's health insurance reform was conspicuously absent from the commission's recommendations moreover and in all likelihood, Democrats will oppose any attempt to repeal the law or stall its implementation.

If Democrats remain averse to entitlement reform, Republicans cannot agree to tax hikes. Revenues may have dropped as a natural result of the recession but Republicans are right to point out that Washington has a spending problem before anything else.

Democrats have raised public spending as high as 25 percent of GDP, a level not seen since World War II. As a result of health care and financial reform, government interference in the private sector has grown substantially; a role that is only set to expand if the administration manages to advance its energy agenda. Restoring balance to the budget is not just a political cause for Republicans; it is economically imperative.

December 13, 2010

In what is another major setback for the administration's health care reform agenda, a federal judge in Virginia ruled part of the ObamaCare legislation unconstitutional today, noting that a mandate to buy health insurance exceeds the boundaries of Congress' power.

The state's Republican attorney general filed suit against the health reform law this summer along with prosecutors across the country who contested the mandate's constitutionality. The White House has maintained that the mandate is constitutional under the Commerce Clause which allows the Federal Government to regulate interstate trade. District Judge Henry Hudson has now struck down that view.

Federal courts in Michigan and Virginia previously ruled differently, opining that the mandate was constitutional. In his ruling Monday, Hudson stopped short of blocking health care reform's implementation until a higher court acts. "The final word will undoubtedly reside with a higher court," he wrote. Opponents of the law as well as the Justice Department expect the Supreme Court to ultimately make a ruling on the issue.

Health care reform's assault on individual rights may be argued to exceed the mandate however. Not only would all Americans be forced to buy insurance; health insurance companies could not deny coverage to anyone. The law is further meant to drive down permissible doctors' fees, affecting the rights of health providers.

The White House on Monday tried to downplay the significance of the Virginia ruling, point out that the full health care reform bill does not take effect until 2014. The administration expects all challenges to the law will have worked their way through the legal system by then.

After billions in stimulus spending and bailing out banks and automakers, America’s public finances are in a dismal state. This year, the federal deficit alone is set to near $1.5 trillion while the national debt reach a staggering $13.7 trillion last month. Americans may need to brace for austerity but plans to rein in spending are few and controversial.

Ahead of November's midterm elections for Congress, Republicans pledged to rein in spending, somehow but they volunteered few specifics. A deal struck with the administration this week, which sees an extension of tax cuts combined with continued unemployment benefit spending into next year, offers little hope for future bipartisan agreement. Similarly, both parties' response to the only concrete plans for deficit reduction drawn up so far have been virtually opposite on all major items.

The National Commission on Fiscal Responsibility and Reform which was formed by President Barack Obama in January, proposed deep budget cuts last month, including a freeze in government salaries, reductions in subsidies and an end to congressional earmarks. The largest expenditures of government---entitlements as Medicaid, Medicare and Social Security which together account for more than $1.4 trillion in federal spending---were not exempt from the commission's recommendations although proposed reforms fell short of actually balancing the books on these programs. ObamaCare, which will only increase health care spending, was not mentioned in the commission's report.

Raising the retirement age and asking doctors if not insurers to share in the burden of mounting health care costs, as the commission prescribed, will not make the entitlements affordable unless their scope is reduced or taxes are raised. Democrats are adamantly opposed to entitlement reform however and the president has explicitly pledged to preserve Social Security "forever." Republicans will block any proposed tax hike, leaving the country with a huge deficit that equals approximately a third of total spending.

If Democrats and Republicans cannot manage to shrink the deficit there is another way---freeze federal spending altogether. Even if revenues collapsed to barely 15 percent of national income as a result of the recession, the Congressional Budget Office estimates that tax revenues will grow by an average of 7.3 percent annually over the next decade. Without an increase in government spending, the budget will balance itself by 2016. Even if spending is allowed to keep pace with inflation and grow at 2 percent a year, the budget balances in 2020.

By that year even the president's fiscal commission is still several hundreds of billions short of balance. But as the national debt continues to mount, so do interest payments which this year amounted to more than $160 billion---an 18 percent increase compared to 2009.

A freeze in federal spending---which, as the economy recovers and begins to grow again, effectively amounts to a reduction in the size of government---should not be anathema to any politician. Democrats have raised spending as high as 25 percent of GDP, a level not seen since World War II. The debt it incurs is unsustainable while such a raised involvement of government in the private sphere is economically unsound.

The list of companies, insurers and unions winning exemptions from the new health reform legislation has grown to 222, doubling since early November and up from just 30 in the month of October.

Companies and unions that provide health coverage for more than 1.5 million people now don't have to abide by health reform changes for one year beginning January 1. That includes 34 unions with more than 140,000 members.

Many unions had fought hard for health reform and were dismissive about fears that companies would simply dump their coverage if health reform passed. But they are now demanding to be exempt from the new law.

MacDonald rightly wonders whether it's fair that companies without sufficient political pull in Washington DC must follow the new health care rules and regulations while their competitors who get waivers do not. It's not just unfair. It's outrageous.

Libertarian Texas Congressman Ron Paul will chair the Domestic Monetary Policy Subcommittee in the next Congress; the committee that oversees the Federal Reserve Reserve which Paul is an outspoken opponent of.

Twice before did Paul try to get elected chairman of the committee. In the present Congress, he has been the Republican ranking member on the committee. Reportedly, John Boehner, the next Speaker, tried to prevent Paul's election as he's likely to use his position to continue to criticize the Fed. Polls show that approximately half of all Americans are in favor of either reining in the Fed's power or abolishing it altogether. Particularly among tea partiers, antagonism of the central bank is widespread.

December 8, 2010

Theodore Dalrymple is skeptical of WikiLeaks' release of confidential American embassy cables. He warns that the whistleblowers are unwittingly doing the work of totalitarianism.

The idea behind WikiLeaks is that life should be an open book, that everything that is said and done should be immediately revealed to everybody, that there should be no secret agreements, deeds, or conversations. In the fanatically puritanical view of WikiLeaks, no one and no organization should have anything to hide. It is scarcely worth arguing against such a childish view of life.

What WikiLeaks will accomplish, Dalrymple predicts, is precisely the opposite of what it champions. "Far from making for a more open world, it could make for a much more closed one."

Secrecy, or rather the possibility of secrecy, is not the enemy but the precondition of frankness. WikiLeaks will sow distrust and fear, indeed paranoia; people will be increasingly unwilling to express themselves openly in case what they say is taken down by their interlocutor and used in evidence against them, not necessarily by the interlocutor himself. This could happen not in the official sphere alone, but also in the private sphere, which it works to destroy. An Iron Curtain could descend, not just on Eastern Europe, but over the whole world. A reign of assumed virtue would be imposed, in which people would say only what they do not think and think only what they do not say.

Dissolving the distinction between public and private is characteristic, if not the outspoken aim, of any totalitarian regime. "Opening and reading other people’s e-mails is not different in principle from opening and reading other people’s letters," argues Dalrymple. WikiLeaks has assumed the role of censor to the world, he believes, "a role that requires an astonishing moral grandiosity and arrogance to have assumed. Even if some evils are exposed by it, or some necessary truths aired, the end does not justify the means."

December 4, 2010

[...] there once were 8,000 Soviet labor camps spattered like islands across the Russian landscape—the "Gulag archipelago" of which Alexander Solzhenitsyn famously wrote. Each camp housed about 250 prisoners, most serving 10- to 25-year sentences for contrived offenses like "uncooperativeness" or "sabotage." By the time the U.S.S.R. fell, some 30 million individuals had experienced the Gulag personally [...]

The atrocities of Soviet Russia were worse than the gulag. Millions more died as a result of the failed collectivization of Russian agriculture and the famine that ensued. Suffering was the universal condition under Communism. Scarcity its norm.

As Hildreth wandered about Perm-36, the last remaining Gulag forced labor camp, which is now a tourist attraction and memorial, he wondered the same time while beholding the Killing Fields of Cambodia, the former KGB prison in Lithuania, and the wrecked streets of East Timor: "How did this ever seem like the right thing?" Consider this quote from Ayn Rand, "Conservatism: An Obituary," published in Capitalism: The Unknown Ideal (1966):

The social system based on and consonant with the altruist morality—with the code of self-sacrifice—is socialism, in all or any of its variants: fascism, Nazism, communism. All of them treat man as a sacrificial animal to be immolated for the benefit of the group, the tribe, the society, the state. Soviet Russia is the ultimate result, the final product, the full, consistent embodiment of the altruist morality in practice; it represents the only way that that morality can ever be practiced.

South Korea and the United States finalized a free trade agreement over the weekend which the White House hopes will boost American exports by some $11 billion and sustain at least 70,000 jobs at home. That makes the pact the largest of its kind since the North American Free Trade Agreement with Canada and Mexico came into force in 1994.

In Seoul last month President Barack Obama had to postpone the signing of a trade deal with Korea. In a statement released Saturday, the president explained that he had directed American negotiators "to achieve the best deal for American workers and companies," particularly with regard to car exports and beef.

Instead of cutting a 2.5 percent tariff on Korean car imports, the United States will lift the tax over the next five years. A 25 percent tariff on trucks will be phased out during the next decade. South Korea's tariff on American trucks has to be eliminated immediately however. Under the agreement, American automakers are each allowed to export up to 25,000 cars to Korea annually.

Korea's existing tariffs on agricultural imports are exceptionally high at 54 percent. As the new trade agreement eliminates or reduces import levies, the American Farm Bureau Federation estimates that farmers' and ranchers' exports to Korea will increase by as much as $1.8 billion every year thanks to expected increases in sales of major grain, oilseed, fiber, fruit, vegetable, and livestock products. Koreans bought $3.9 billion worth of agricultural products in 2009 and are America's fourth largest beef importers.

South Korea is already America's eight largest trading partner. Last year the United States imported $11 billion more worth in goods from Korea than they exported though---an imbalance that the free trade pact seeks to remedy. The American trade surplus to South Korea was $7.1 billion in 2008.

Business leaders as well as seniors Republicans have welcomed the trade agreement which is subject to congressional approval.